Vonage to Cut About 180 Jobs; CEO Steps Down

By Annalisa Burgos

Thursday, 12 Apr 2007 | 6:03 PM ETCNBC.com

SHARES

Investors in struggling Internet phone company Vonage Holdings seem to be approving of its massive restructuring plan, as shares jumped Thursday after its chief executive stepped down and it announced plans to cut roughly 180 jobs, or 10% of its workforce, CNBC's Jim Goldman reported.

CEO Michael Snyder resigned from the board effective immediately. Founder and chairman Jeffrey Citron will serve as interim CEO until the company finds a replacement. The move comes a month after the company lost a key patent lawsuit against Verizon Communications, which threatens to cripple its growth.

Vonage also announced plans to fire about 180 workers and implement a hiring freeze, Goldman said.

“Vonage will have to make strides to cut their subscriber acquisition costs to reduce subscriber turn if they’re going to survive as well as successfully accomplish a workaround for their patent problems,” said Sally Cohen, an analyst with Forrester Research. “If not, then their survival is at risk.”

Vonage plans to reduce its general administrative expenses by $30 million through the rest of 2007 by cutting its workforce and consolidating operations. It plans to reduce marketing expenses by $110 million, resulting in marketing expenditure of about $310 million for 2007.

It said in a filing with the U.S. Securities and Exchange Commission that it expected a $5 million charge for employee termination benefits in the second quarter.

"We believe these initiatives will strengthen the company's financial position and bring us to positive adjusted operating income," Citron told investors on a conference call.

Citron, who had been chairman and CEO of Vonage from January 2001 to February 2006, told analysts on a conference call that the cut in marketing spending would probably lead to fewer customer additions this year.

Vonage expects revenue of $195 million for the quarter ended March 31, compared with the average Wall Street analyst forecast of $197.8 million according to Reuters Estimates.

It added 166,000 net subscriber lines in the quarter, with customer losses -- known as churn -- of 2.4%. The average marketing cost per gross subscriber addition was $275.

The money-losing company said it could not give a new forecast for when it would turn a profit because it was still assessing the impact of the patent dispute with Verizon. Vonage had previously said it would post an adjusted operating profit in the first quarter of 2008.

A U.S. federal appeals court will hear oral arguments on April 24 on Vonage's request to carry on its business normally while it appeals an earlier finding that it infringed Verizon's patents.

A jury in March found Vonage had infringed on three patents owned by Verizon related to voice over Internet protocol (VoIP) technology, and said Vonage must pay $58 million, plus royalties on future sales.